Bidders in the 2013 CabinetMakerFDM Pricing Survey came in more competitively close to each other, but high bids were still more than double the lowest bids in every project. That gives a good picture of the wide variation in pricing for custom work, and a closer examination of the results gives strong clues where bidders most commonly go wrong.

Now studying pricing for more than 15 years, the CabinetMakerFDM Pricing Survey is the only tool in the woodworking industry that attempts to create a direct comparison of pricing for custom woodworking projects. Each year, the survey takes a handful of real projects done by real shops and makes the bidding specifications available to shops all across North America. They are asked to bid appropriate jobs just as if they were doing them in their own shop. Then we print the itemized results in the magazine so readers can compare not only the final prices but also the estimates for key factors such as construction hours, shop rates, and materials costs.

This year’s projects represented a good range, including custom furniture, residential and commercial kitchens, and a residential built-in project. In the original bid package there was also big millwork project encompassing the build-out of a credit union, but perhaps because of the complexity of the job, we received no volunteer bids for that project. (If anyone still wants to submit bids for that project, you can download the bid package online and still submit bids. If we receive enough bids, we will use the project for next year’s survey or run a special addendum to this survey.)

Variances closer

In most years, the survey shows remarkable variances between the lowest and highest bidders. In some years, we have had projects in which the highest bid is as much as six or eight times the lowest bid. In this year’s survey, most of the bids came in significantly closer than that. And if highest and lowest bids are removed, the variations narrow even more.

This seems to suggest that the downturn in the economy and the subsequent slow recovery have served to further tighten competition and to increase efficiencies in shops. Rather than using increased efficiency solely to add to the profit margin, many shops see it as an opportunity to be more competitive on pricing without unduly reducing profit margins.

In this year’s survey both of the original bidders in the residential and commercial kitchen projects came in at below the average price. And it is also interesting to note that both of those shops, one in Florida and the other in California, noted that their final price was heavily influenced by concerns about price competition.

Devil in the details

Many people over the years have commented about the wide variation in final prices in the survey, but they often don’t pay close enough attention to the detailed breakouts that provide more insights into where pricing variations occur. This year’s survey is a particularly good example, showing variations in labor and materials estimates that frequently are more widely divergent than total prices.

For example, in the China Buffet project, materials estimates varied from a low of just $237 to a high of $3,173. That’s a variance of more than 13 times the low price even though the highest final bid was only about five times the lowest bid. Interestingly, the lowball materials quote was less than a tenth of what the original bidder said actual materials were.

Similarly, the amount of time shops estimate for projects varies widely. In the two kitchen projects, for example, high construction hours estimates were four to five times the lowest estimates. Finishing and installation times vary similarly. Some of the differences can be accounted for with dramatic time savings in automated production, but not all of the CNC shops post the lowest construction hours, which brings us to some other issues.

Figuring other factors

Over the years, we have added new questions to delve deeper into factors that might affect pricing. On the technology side, we ask shops to say whether they use CNC equipment in manufacturing and whether they use computer software in bidding. Year after year, there seems to be no consistency in where higher technology shops show up in the survey compared to more traditional competitors.

One might think that CNC shops, for example, would always post lower construction hours estimates regardless of final prices, but that just isn’t the case. CNC shops show up in the high and low end of both final prices and construction hours quotes. Similarly, whether shops use any kind of software in their bidding seems to have little to do with the end results.

Before we started asking bidders to state how long they have been in business, some suggested that inexperience probably led to wide bid variance. It turns out that most bidders in the survey tend to be very experienced shops, with the average well over 20 years for all projects in this year’s survey. Another factor is the time bidders invest in the survey. These are not off-the-cuff estimates. This year’s bidders spent on average about two hours for each bid. In some years, bidders have spent up to six hours. In short, these shops invest serious time participating.

Price pressure

One factor that no one who survived the Great Recession doubts is the pricing pressure shops continue to feel in the marketplace. Several of our original bidders this year noted that they reduced or discounted their projects to be more competitive or to please (and keep) a good regular customer. A couple of the original bidders felt they “gave away” the original job for the price they charged.

Before the recession we heard more shops talking about becoming more efficient to increase profits. Now efficiency initiatives are just as likely to be driven by an attempt to be more price competitive without sacrificing existing profit margins.

Other data in the survey that hints at pricing pressure is the slow movement of shop rates. As recently as seven years ago, the survey frequently quoted shop rates as low as $25 per hour. Now it is rare to see bids below $40 or $50 an hour, and several show up in the $95-$100 range. We all know that overhead costs for things like energy, insurance and waste disposal continue to rise, so we should see shop rates rise accordingly. But since the recession, shop rates quoted in the survey have been surprisingly static. This likely again reflects pricing pressure.